Royal Mail share price tumbles over delay in shake-up plan

Firm warns union of serious damage from strike action in election and Christmas period

Royal Mail has warned that strike action could tip its UK operation to a loss next year as it falls behind on plans to transform the business in the face of a faster than expected drop in letter volumes.

The warning sent Royal Mail’s share price tumbling more than 17%, wiping £400m from its stock market value, despite the company reporting its best revenue performance in the UK for five years and a significant increase on profits for the half year to the end of September.

Royal Mail used its results to warn the Communications Workers Union that potential strike action in the run-up to the general election and key Christmas period would seriously damage the business.

“Industrial action, or the threat of it, can only hurt our company, and our colleagues,” said Rico Back, group chief executive at Royal Mail. “That is because, in today’s postal market, our customers have choices. Consumers can send a text or email when they would once have written a letter; and shippers can choose from a wide range of delivery companies, not just Royal Mail.”

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On Wednesday, the CWU lodged a high court appeal after Royal Mail won an injunction to stop a planned strike over pensions.

The company said the “current industrial relations environment” was a factor that may affect efforts to improve productivity, which could “possibly result in a break-even or loss-making position for the UK business in 2020-21”.

Back also admitted that a £1.8bn transformation plan to move Royal Mail away from its focus on letter delivery to be more competitive with parcels, a booming sector thanks to the rise of online shopping, was behind schedule.

“People are posting fewer letters and receiving more parcels. Our UK network, however, is primarily configured to quickly and efficiently deliver letters. In short, we want to change from a UK letters company that delivers parcels, into a parcels-led, international company that also delivers letters.”

Royal Mail said that excluding the boost from the general election, letter volumes were falling faster than forecast. The company had expected a letter volume decline of between 5% and 7% this financial year. On Thursday, the company said it now expected a fall of 7-9%. In Royal Mail’s 2020-21 financial year it is forecasting letter volumes to decline by 6-8%, excluding elections.

“Breaking the cycle of decline and returning the UK operations to growth is at the heart of our strategy,” said Back. “The challenging financial outlook in the UK means now, more than ever before, we need to make the changes required – and accelerate them – to ensure a successful UK business.”

Royal Mail reported a 5.1% increase in half-year revenues to £5.1bn while pre-tax profits climbed to £173m, compared with £33m in the same period last year.

Royal Mail’s stock market value fell from £2.3bn to £1.9bn as its share price slumped to 191p in early trading on Thursday. It is hovering close to half the 330p the company floated at in October 2013. The company’s share price hit a high of 617p in early 2014. Over the past year, Royal Mail’s share price has fallen by 40%.